Monetary Policy and Data Uncertainty: A Case Study of Distribution, Hotels and Catering Growth

These papers report on research carried out by, or under the supervision of, the external members of the Monetary Policy Committee (MPC) and their economic staff.
Published on 11 December 2007

External MPC Unit Discussion Paper No. 19

Lavan Mahadeva

This paper is a case study of the real world monetary policy data uncertainty problem. The initial and the latest release for growth rates of the distribution, hotels and catering sector are combined with official data on household income and two surveys in a state-space model. Though important to the UK economy, the distribution, hotels and catering sector is apparently difficult to measure. One finding is that the initial release data is not important in predicting the latest
release. It could be that the statistical office develop the initial release as a building block towards the final release rather than an estimate of it. Indeed, there is multicollinearity between the initial release and the retail sales survey, which would then contain the same early available information. A second finding is that the estimate of the later release is sensitive to the estimate of the average historical growth rate. This means that establishing priors for this parameter and testing for shift structural breaks should be very important.

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